The coronavirus pandemic has triggered many short-term impacts, with some of these having the potential to become longer-term issues, according to Swiss Re’s 2020 SONAR report. Some of the impacts were anticipated based on Swiss Re and other experts’ past analyses of pandemic risks, but many have turned out to be unpleasant surprises.
“The pandemic was not something unexpected,” said Thomas Holzheu, Swiss Re’s chief economist for the Americas. “From the insurance world, this was always one of the contingency scenarios, definitely since SARS, but also before that was on the radar screen it was part of the enterprise risk management for the insurance sector.”
Nonetheless, one of the unexpected challenges stemming from COVID-19 has been the extent of government shutdowns, which have been varied across countries, states and even between municipalities. Shutdowns in general were stronger than expected, explained Martin Weymann, head of sustainability, emerging and political risk management at Swiss Re, pointing to other key issues that have come up over the course of recent months, such as “the fragility of healthcare systems, global pharmaceutical supplies, supply chain topics and intergenerational tensions – all topics which remain relevant over the coming years,” he said.
The severity of the virus and its spread were other surprises in addition to the extensive shutdowns, which altogether resulted in an extreme reduction of economic activity that over the short-term has been one of the most severe impacts of the virus, noted Holzheu.
The insurance industry has likewise been affected by the pandemic, seen in the impact on investment portfolios, wide-ranging exposures to pandemic risk, and subsequent legal challenges. Supply chain risks related to the crisis have also risen to the top of the agenda for insurers and their commercial clients.
“Questions around globalization are being raised now,” said Holzheu. “We have already seen for a while, that globalization had peaked after the financial crisis and the trade war was another step in that direction. With supply chains, particularly involving China and East Asia, there has been more diversification and more geographic diversification, but maybe also some shortening of supply chain will come out of this and supply chain risks will be higher on the agenda for enterprise risk management going forward.”
As governments ease lockdowns in many regions around the world – and in some cases, halt reopening as cases start peaking again – governments’ approaches to combatting ongoing issues with the coronavirus will also have impacts over the short-term as we learn to live with the virus. Swiss Re expects unemployment increases and corporate defaults, and is keeping an eye on how the current crisis could lead to the worsening of credit conditions.
The well-being of not just markets, but human beings is another evolving risk. Already, before the pandemic, declining mental health among teenagers and young adults was an issue, with one in six people aged 10-19 affected, according to Swiss Re. The SONAR report highlighted that mental illness can afflict more people than usual in times of pandemic like this year’s COVID-19 crisis. The millennial generation has, in particular, been burdened with this and other challenges, which together could have significant impacts over the longer-term.
“There is this intergenerational imbalance where you can also predict stronger potential tensions as millennials have been at the end of their school time or during school time as the financial crisis hit,” said Weymann. “Post-crisis, many of them had to suffer austerity and unemployment as they were just at the beginning of their career.”
Debt from student loans has likewise weighed on younger generations, putting them at a disadvantage in their economic standing. This should concern insurers as these are up-and-coming insurance customers.
“This is a growing generation, which is now also requesting insurance and if they won’t be able to spend more [on their insurance] then there is also the likelihood that there will be somewhat dampened insurance demand,” said Weymann, adding, “The increasing mental health issues which we see currently will lead to more disability and in particular we’re seeing that among the younger ages. [The pandemic] will, from that perspective, have an impact on both the economic as well as the health side of the millennial generation. And I think quite a lot of attention should be given to that group of the demographic.”
